Even the most well-intentioned employers can create outcomes-based wellness programs that run afoul of the law, according to Jason Sheffield, a benefits attorney with the Willis Human Capital Practice National Legal & Research Group in San Francisco.

Speaking at the Society for Human Resource Management (SHRM) 2016 Annual Conference & Exposition on June 20, he outlined four hypothetical scenarios of programs gone awry.

Employers with outcomes-based wellness programs (such as smoking cessation programs) are often tripped up by the reasonable alternative standard—which dictates that an option must be offered to individuals with medical conditions to obtain a health plan reward even if they are not in a position meet a targeted biometric (or other, similar) standard. While smokers are not considered individuals with a disability under the Americans with Disabilities Act, the Diagnostic and Statistical Manual of Mental Disorders-5 states that nicotine addiction is a medical condition, Sheffield noted.

Scenario 1: Timing of Reward

Suppose a company announced in January 2015 the creation of a tobacco cessation program and plans to introduce a tobacco surcharge of $50 a month beginning in 2016 to the overall health plan. In October 2015, during open enrollment, employees were directed to declare if they were tobacco users. In December 2015, tobacco users were told they had to complete the cessation program on or before Dec. 31 or face paying a 2016 health plan premium differential. In January 2016, the annual employee premium for a nonsmoker was set at $2,000, while the annual employee premium for a tobacco user was set at $2,600. What’s wrong with this picture?

After all, the employer offered a reasonable alternative—the cessation program, an alternative to paying the higher health plan premium. But the reward—no tobacco-related hike in the premium if the cessation program is completed—occurred in the wrong year. The participant must earn the credit for the $600 in the same plan year in which the reasonable alternative standard is satisfied.

Scenario 2: Failure to Communicate

In another example, Sheffield described a hypothetical employer that in October 2015 announced an increase in the cost of employee-only coverage for the 2016 plan year to $5,000 annually. In November 2015, it announced that, effective Jan. 1, it would begin offering a $400 incentive for nonsmokers. In December 2015, it announced that, effective Jan. 1, it would adopt a $400 incentive for employees providing biometric information, such as body mass index, blood pressure, and blood glucose and cholesterol levels. In January 2016, it informed employees about an alternative $400 incentive for participation in a physical activity program.

Here, the employer failed to communicate reasonable alternative standards for its outcomes-based incentives. Employees who elected to participate in biometric screening may have felt uncomfortable with the amount of personal information they shared—and wouldn’t have opted to share the info had they known about the incentive associated with the activity program.

Scenario 3: Medical Examinations

Suppose an employer announced in July 2015 wellness incentives for 2016 of $500 for employees completing biometric screening and $500 for those undergoing a health risk assessment. In November 2015, certifications of biometric screening and health risk assessments were due to the plan administrator. In January 2016, participants who had not submitted timely certifications were denied enrollment. Participants who had submitted certifications in time received up to a $1,000 discount. In this example, the employer violated the Americans with Disabilities Act by requiring medical examinations.

Scenario 4: Testing Policies

In Sheffield’s final example, an employee enrolled in an employer-sponsored preferred provider organization health plan in October 2015 and voluntarily submitted an affirmative declaration confirming that he was a tobacco user. In April 2016, the employee indicated that he had satisfied the plan’s reasonable alternative standard—its smoking cessation program. In June 2016, after a co-worker reported witnessing the employee smoking on a break, the HR director surprised the employee by notifying him that he had to submit to a test to determine whether he’d started smoking again. In July 2016, having failed the test, the employee was charged back for the reduced premium and dropped from the plan.

In this scenario, the employer did not provide advance notice of the testing policy in plan materials. The employer co-mingled its fiduciary duties as a plan sponsor with its privacy obligations. The employer also improperly withheld wages—theft—by reclaiming the refunded premium reduction, Sheffield said.

Give It a Try

Despite the compliance difficulties that health outcomes programs present, Sheffield encouraged attendees to dip their toes in the water and at least give a tobacco cessation program a try. In the world of group health benefits, a health outcome program is “one of the only things you can do to reduce costs,” he said.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.​